Property market update
By Tony Borg
We're reminded daily by media agencies from around the globe, playing the same news on high rotation. It's fair to say there are certain topics we're all getting tired of.
- Interest rates are on the rise
- Inflation and commodity costs are uncomfortably high
- Geopolitical tensions (Ukraine war/the Australia and China trade war/US elections in 2022)
- Extremely low unemployment and labour shortage in Aus.
- Low property supply
- Property rental crises in major cities
- ETC
This has an impact on all asset classes, including real estate and thus property. Unfortunately, there is no crystal ball to predict what will happen or when, especially when you factor in irrational human behaviour. There are certainly ways to better improve these situations, take a read of Navigating uncertain markets, by Navigate Financial’s Helio Brindeiro, as he takes a look into three things that can help weather the storm of a volatile market.
For this reason, I would like to share with you the experience I’ve gained from more than 30 years as a financial adviser and property investor, from navigating multiple bear markets (including the GFC) and Australia’s early recession in the 90s.
Bear market: Occurs when a market experiences prolonged price declines. If you would like to understand more about this kind of market, take a read of Navigate Financial senior adviser Rory D’Agostino’s detailed overview in his article: 2022 market volatility: The up, down and sideways of it all.
Recession: Part of a business cycle and is a necessary evil for every healthy economy. The most common definition of recession used in the media is a ‘technical recession’ in which there have been two consecutive quarters of negative growth in real GDP.
The business cycle
I’ve learnt to focus on the long term spectrum. In the short run, the demand for housing can change more quickly than the supply, so housing prices will need to adjust temporarily to equilibrate housing demand over supply.
Don’t make emotional decisions based on fear or greed. Be analytical and try to link your investments back to your goal.
Having said that, here is some food for thought should you be considering getting into or out of the property market.
Graphs 1 and 2, below, are in regards to inflation and house prices from the 70s.
Graph 1: Housing price indices (1970 - 2003)
Graph 2: Inflation, housing prices and quality
Source: ABS; APM; CoreLogic RP Data; RBA
In graph 2, you see that during the 1980s, nominal housing price inflation was relatively high and volatile, but so too was general price inflation. Indeed, until the late 1980s, house prices grew broadly in line with general price inflation (graph 1).
Obviously, these were different times. Russia wasn’t at war with Ukraine, and people behaved and reacted differently. Nevertheless, I believe it is important to learn about what has happen in the past, to better understand and plan the future.
Having reviewed the past data, graph 3 and 4 give below give us an understanding of the most update inflation and property figures, as provided by the RBA and the ABS, shining light on what is happening at this present time.
Graph 3: Measures of consumer price inflation
Graph 4: Total value of dwelling stock, Australia
Key statistics
The weighted average of Australia’s eight capital cities Residential Property Price Index:
- Rose 4.7% this quarter
- Rose 23.7% over the last twelve months
| Residential property prices | Sep Qtr 21 to Dec Qtr 21 (% change) | Dec Qtr to Dec Qtr 21 (%change) |
|---|---|---|
Weight average (8 cities) |
4.7% |
23.7% |
Sydney |
4.1% |
26.7% |
Melbourne |
3.9% |
20% |
Brisbane |
9.6% |
27.8% |
Adelaide |
6.8% |
23.9% |
Perth |
2.9% |
15.7% |
Hobart |
6.5% |
29.8% |
Darwin |
1.5% |
13% |
Canberra |
6.4% |
28.8% |
With all things considered, there were significant house price booms in Australia from 1971 to 1974, 1979 to 1981, 1987 to 1989, and 1996 to 2003. After each of the first three booms, real prices tended to fall. However, in the long term, real price rises outstripped falls.
Therefore, I would like to believe that we will see similar results following the most recent boom, from 2019 to March 2022.
Feel free to contact Tony or one of the team at Navigate Financial Group who are here to support your financial decision making, leading you confidently into your financial future.
References/ footnotes:
1. https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/residential-property-price-indexes-eight-capital-cities/latest-release
2. https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/total-value-dwellings/latest-release
3. https://www.rba.gov.au/chart-pack/aus-inflation.html
4. https://www.rba.gov.au/publications/bulletin/2015/sep/3.html
5. http://www.econ.mq.edu.au/__data/assets/pdf_file/0018/220581/Abelson_9_04.pdf
6. https://www.asx.com.au/documents/resources/share_price_movements.pdf
Disclaimer: This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.
